The S&P 500's second-quarter earnings season is shaping up to be a blockbuster — on paper. Headline numbers suggest the index is tracking roughly 52% year-over-year profit growth, with technology stocks doing much of the heavy lifting. But a closer look reveals that a meaningful slice of that growth comes from accounting entries, not actual business operations.
According to Tajinder Dhillon, who leads earnings research at LSEG, the figures are inflated by mark-to-market gains — accounting adjustments that revalue investments to their current market prices. When you strip out these paper gains at two of the biggest tech names, Alphabet and Amazon, the picture changes dramatically: second-quarter profit growth drops from 52% to 33%.
What are mark-to-market gains?
Mark-to-market is an accounting practice that values an asset at its current market price rather than its original cost. For companies that hold large stakes in other businesses, this can create significant swings in reported earnings — even if the company hasn't sold anything.
Amazon's second-quarter 2026 results, for example, included $53.4 billion in non-operating pre-tax “other income,” largely tied to its stake in Anthropic, the AI startup. That's a paper gain: the value of Amazon's investment rose, but Amazon didn't cash out. Similarly, Alphabet has reported gains from its AI-related investments.
These gains are real in an accounting sense, but they aren't the same as revenue from selling products or services. They can inflate earnings per share (EPS) and make a company's underlying performance look stronger than it actually is.
Why it matters for the S&P 500
For index-level earnings, these paper gains can distort the aggregate picture. The S&P 500's 52% growth rate is a headline number that investors and analysts often use to gauge corporate health. But if a large chunk of that growth is non-operating and potentially reversible, the true earnings power of the index is lower.
Excluding Alphabet and Amazon, the growth rate falls to 33% — still strong, but a more sobering figure. It suggests that the broader market's earnings momentum, while solid, isn't as spectacular as the top-line number implies.
This distinction matters for valuation. Investors often compare stock prices to earnings to determine whether the market is over- or under-valued. If earnings are flattered by one-time paper gains, the price-to-earnings ratio looks cheaper than it really is.
Analysts are still raising estimates
Despite the accounting noise, analysts are actually lifting their third-quarter estimates. That suggests they see genuine strength in the underlying businesses, not just paper gains. The AI boom continues to drive demand for cloud computing, data centers, and related services, which benefits companies like Alphabet and Amazon.
But the split between operating earnings and non-operating gains is worth watching. As software earnings beats widen in Q2, the AI trade is increasingly separating winners from laggards. Companies with direct exposure to AI infrastructure are seeing real revenue growth, while others are struggling to keep up.
For everyday investors, the key takeaway is to look beyond the headline EPS number. When a company reports a big earnings beat, check whether it came from operations or from one-time items like investment gains. The same applies to index-level data: a 52% growth rate sounds great, but the 33% underlying rate is a more reliable guide to the market's health.
What it means for investors
This isn't a reason to panic — 33% growth is still well above the historical average. But it does mean investors should be cautious about extrapolating the headline number into future quarters. Paper gains can reverse just as quickly as they appear, especially if AI-related valuations cool.
As Stripe's $8B OpenRouter deal shows AI's shift to infrastructure, the AI investment cycle is far from over. But the accounting effects of that cycle are becoming more visible. Investors should focus on cash flows and operating margins, not just reported earnings.
Also, keep an eye on how the broader market reacts. If investors start to discount these paper gains, it could put pressure on tech-heavy indices. On the other hand, if underlying earnings continue to beat, the market may look past the accounting noise.
For now, the S&P 500's earnings season is a mixed bag: strong underlying growth, but with a layer of artificial inflation. Understanding that distinction is crucial for making informed investment decisions.
